NJ reviewing plan to run St. Mary’s hospital in Passaic for profit

The state Attorney General’s Of­fice is asking dozens of questions about the proposed sale of St. Mary’s Hospital in Passaic to a Cal­ifornia-based for-profit hospital company as part of the review re­quired when charitable institutions are converted to for-profit status.

State authorities want to know how Prime Healthcare Services, which operates 21 hospitals and wants to expand into the North­east, came to bid on St. Mary’s, and how the proposals submitted by Prime and other bidders were eval­uated. “Why are the trustees willing to accept a commitment from [Prime Healthcare] to maintain the hospital as an acute-care facility for only five years?” asks one of the 50 questions.

The attorney general’s role is to ensure that the benefits the hospi­tal enjoyed as a tax-exempt institu­tion over the century since its founding are protected for the pub­lic. St. Mary’s became the last hos­pital operating in Passaic in 2007, after two others failed. It, too, de­clared bankruptcy but emerged, and has been operating on a shoe­string, with state help, for years.

“These questions are normal and customary” when the attorney general reviews a sale, said Erik Ramos, a spokesman for St. Mary’s. “They will be answered ful­ly and completely.” He added that “we hope the purchase agreement will be finalized soon.” Prime pulled out of an earlier ef­fort to acquire a New Jersey hospi­tal — Christ Hospital in Jersey City — last February after similar ques­tions were raised by the attorney general and local residents and the nurses union rallied in opposition, citing the issues with the compa­ny’s track record in California.

Prime is being investigated by the federal Department of Justice for billing practices at its California hospitals that allegedly boosted Medicare reimbursement by in­creasing the diagnoses of rare con­ditions, such as kwashiorkor, a type of malnutrition found in the poorest developing countries. The company has denied the allega­tions, attributing them to a cam­paign by the Service Employees In­ternational Union, which repre­sents nurses at some of its hospi­tals.

The company also was fined $95,000 by the California Depart­ment of Public Health for disclos­ing patient information in violation of federal privacy laws. It denies the charge and is appealing the fine. The civil rights office of the federal Health and Human Ser­vices Department has started a compliance review related to the charge, according to Prime’s filings in connection with the purchase of a Rhode Island hospital.

Prime, whose motto is “saving hospitals, saving jobs, saving lives,” launched an aggressive national expansion effort last year, 10 years after its founding by California cardiologist Prem Reddy. It is awaiting approval from Rhode Is­land authorities for the purchase of Landmark Medical Center in Woonsocket, and is also negotiat­ing to acquire St. Michael’s Med­ical Center in Newark from Catholic Health East, said Arnie Kimmel, senior vice president of development.

Prime signed an agreement on Nov. 28 to pay $25 million for the 269-bed St. Mary’s, an institution sponsored by the Sisters of Chari­ty of St. Elizabeth. The money would go toward paying part of the hospital’s $39 million bond debt and its unfunded pension obliga­tion for non-union employees.

As a result of the sale, St. Mary’s would lose its Catholic identity. The company would invest at least $30 million in capital improve­ments, half of that in the first two years of ownership, according to an agreement signed by Sister Bar­bara Conroy, chairwoman of board of trustees at St. Mary’s, and Red­dy, Prime’s chairman and chief ex­ecutive officer. The hospital would maintain the same charity-care policies, and offer employment to all current St. Mary’s employees at the same wages and benefits.

Prime Healthcare is providing up to $5 million in working capital to cover the period until the sale is completed.

The union representing the nurses at St. Mary’s has supported Prime’s bid. So has Assemblyman Gary Schaer, D-Passaic, and city Mayor Alex Blanco.

New Jersey Deputy Attorney General Jay Ganzman, in a 12page letter to St. Mary’s President Edward J. Condit this week, asked about the process through which St. Mary’s board chose Prime as the buyer and the extent of its re­search on Prime’s record. He asked whether any board members, exec­utives, or managers or their rela­tives would receive any benefit from the sale, what financing Prime has provided while the sale is considered, and how the transac­tion would help take care of the hospital’s unfunded pension liabil­ities.

As with all hospital sales, the ownership transfer must be ap­proved by the state commissioner of health after a public hearing and a recommendation from the State Health Planning Board.

In addition, the sale of a non­profit to a for-profit must be re­viewed by the state attorney gener­al and approved by a Superior Court judge, under New Jersey’s Community Health Care Assets Protection Act.

Prime executives are hoping for a speedy review of the application, Kimmel said, as St. Mary’s contin­ues to operate at a loss.